Circular construction: legal concerns with take-back guarantee

The November 2021 "Glasgow Climate Pact" once again endorses that climate change is high on the political agenda. As research shows that the construction industry carries one of the largest waste streams, there is therefore much "environmental gain" to be made in construction. We see more and more initiatives to reduce the environmental impact both during the design phase, in the construction phase and in the user phase. A good example are take-back guarantees offered by several building material suppliers. In this blog, Marloes Beeren explains what to look out for as a supplier when offering a take-back guarantee.

What is a take-back guarantee ?

In short, when building materials are sold, the supplier and a buyer agree that the buyer can return the building materials to the supplier in the future. The supplier can then reuse these materials for other uses, dismantle them for raw materials or overhaul them and reintroduce them to the market. In this way, fewer building materials will eventually be produced or have to be disposed of via environmentally damaging waste streams. This of course means less environmental impact, but will also contribute to a cheaper production process for the supplier.

The take-back guarantee in legal light

There are several ways to set up a take-back guarantee.

PaaS

If the supplier himself wishes to retain ownership of the building materials, a lease contract can be entered into, for example. In this case, the focus is on the deliverable performance of the building materials and not the transfer of ownership. In practice, this is called "product-as-a-service service" (also known as PaaS). The disadvantage of this form of contract with building materials is that after assembly, building materials often quickly become one with the building in which they are used. Via component formation, the owner of the building in question then automatically becomes the owner of the applied building materials. This blog explains that in some cases this can be avoided by establishing building rights, but that route will often be too costly and administratively complex for building materials.

Property transfer

In practice, therefore, we see that for take-back guarantees, transfer of ownership is still often chosen. In that case, the supplier delivers the building materials to a buyer and the buyer then assembles the building materials in the building. The owner of the building then becomes the owner of the building materials. In the purchase agreement, the parties should agree on taking back the building materials in due course. This means that ownership will revert to the original supplier in the future.  

What concerns are important in the take-back guarantee?

Before the (legal) agreements can be laid down, it is important to consider a number of practical matters that may be different for each building material and each supplier. Of course, this also depends on the supplier's intended use for the building materials after take-back.

♻️Zo as a supplier, you will need to consider the duration of the take-back guarantee. Most materials ultimately have a maximum lifespan and for that reason a supplier will not be able to take back materials indefinitely. There will be a term of willingness linked to the number of years the building materials are still reusable or recyclable.

♻️Daarnaast it is good to agree in advance whether, and if so at what price, the supplier will take back the materials. An example would be a percentage of the sales price, the market value at the time of return or a previously agreed price (deposit model).

♻️Bij a take-back guarantee should also clearly define the condition of the building materials when taken back. Depending on the desired future use, it may for example be important that building materials are well maintained when taken back or that the building materials can be taken back neatly dismantled and without damage. It is advisable to make arrangements for this in the purchase contract. For example, the supplier can prescribe how and with what frequency maintenance must be carried out and/or that the buyer must demonstrate that this maintenance has actually been carried out.

♻️Tenslotte it is also advisable to consider whether the guarantee is linked to the contracting party or the building in which the materials were used. If the take-back guarantee applies only between the supplier and the original purchaser, then when the building is sold, the new owner may not be able to invoke the take-back guarantee without question This may be an undesirable future effect and it is wise to think about this in advance.

Conclusion

In construction, circular initiatives are springing up like mushrooms. A good example is the take-back guarantee that many suppliers of building materials already offer. But to achieve the desired result in practice, the supplier must think in advance about the practical and legal effect of the take-back guarantee. In this way, the supplier is assured that in the future he can and will actually take back the delivered building materials and that this is based on sound agreements.

Although the future will tell whether these guarantees will be used much, it is a step in the right direction to contribute to the ambitious but necessary climate goals to which the Netherlands has committed itself. Do you still have questions about the take-back guarantee after reading this article? Marloes Beeren will be happy to advise you.